Montreal July 10 2024: lATA and the airline industry are disappointed that the Federal Excise Duty (FED) on air tickets for international travel has been increased on 1 July 2024 under the recent Budget announcement by the Pakistan authorities.
ln particular, the FED for economy and economy plus tickets has more than doubled to PKR 12,500.
lATA strongly opposes this increase for reasons listed below, IATA’s previous letter to the Senate Finance Committee on the previous increase in FED is also enclosed for reference.
The International Air Transport Association (lATA) is the trade association for the world’s airlines, representing some 330 air lines and over 80% of global air traffic. Our members include Pakistan International Airlines, amongst many others which operate services to and from Pakistan.
Impact on air travel
The air transport sector is a key enabler of Pakistan’s economy, supporting sectors such as manufacturing and tourism, and providing vital business connectivity. Pre-COVID, aviation supported 425,000 jobs and USD2.8 billion in contribution to the GDP of Pakistan. ln order for the aviation sector to continue supporting the jobs and economy in Pakistan, the Government should ensure that positive policies are put in place to encourage growth ln air traffic and trave demand.
The repeated increases in FED will only dampen travel demand to Pakistan by increasing ticket prices and lATA recommends that the Government removes the latest increase that came into effect on 1 July 2024.
Contradictions with the FED Act 2005 and Government’s commitments under the International Civil Aviation Organization guidelines and recommendations
The FED is by definition of the FED Act 2005 only applicable to “Services provided or rendered in Pakistan”, Hence it should not be applied to international air tickets as international f lights are not servi ces provided or rendered in Pakistan.
Furthermore. the imposition of any levies on international air travel would directly contradict accepted policies on taxation published by the International Civil Aviation Organization (lCAO), a specialized agency of the United Nations. Pakistan, as a signatory nation to the Convention on International Civil Aviation (Chicago Convention) and a Contracting State of ICAO has agreed to be bound by the legal provisions.
The lack of a public consultation process with readily-available cost-benefit information from the Government makes it impossible for airlines to establish a cost-relatedness nexus to analyse and provide comments on the increase. This is against global transparency taxation principles and ICAO guidance. lATA recommends that the Government conduct a public consultation process involving airlines and make all revelant information public should there be proposals to increase or introduce new taxes in the future.
Implementation challenges
It is crucial that there is a conducive operating environment for airlines in Pakistan 50 that they can continue providing critical air connectivity for the country. Any changes in ticket taxes should be shared with the airlines as quickly as possible and well in advance of them coming into effect. This is of utmost importance to allow enough time to make the necessary changes and adaptations in the underlying collection and remittance automation process of ICAO recommends a minimum of four months pre notification, as contained in the ICAO’s Policies on Charges for Airports and Air Navigation Services. The IATA Best Practices for Taxes, Fees & Charges on Air Tickets is enclosed and provides further information. The extremely short lead-time given for the most recent increase in FED, which was announced on 28 June 2024 and came into effect on 1 July 2024, poses significant challenges for the airlines and some tickets are already sold without reflecting the increase.
If the Government is unable to remove the increase in FED. lATA recommends that a six months transition period should be given for the airlines to implement the change in their ticketing process and pricing structures. ln this sense. the increase should have been reflected on tickets sold from 1 January 2025.
